"The Chinese are far ahead of us. They are building a blue water navy also. Aircraft carriers - they are acquiring," said Manmohan Singh in an interaction with a group of editors here.

He was asked about India's defence preparedness in the light of Chinese capabilities to which he replied the nation was modernising its armed forces.

"We have started the process. We are looking at the modernization of our armed forces, including the navy and the air force. For the first time in many many years, we have added two divisions to our army," he said.

"So within the limits of our resources, - we are doing - much advanced air fields in the border areas. We are trying to strengthen the border roads. Also to see, that states on our border - our villagers have access to electricity using solar power. The effort is on," said the prime minister.

He admitted that the defence expenditure as a percentage of the GDP has been falling from year to year.

"That is true. But quite frankly we have not restricted defence spending. No conscious decision has been taken to any fixed percentage. We are as a nation, prepared to live with a defence expenditure equal to three percent of our GDP. If the armed forces have a plan to raise their expenditure to that ceiling, the system will be able to tolerate it."